A survey of registered investment advisors' use of social media shows a wide gap between regulation and reality, at least at smaller firms.
Close to half of Massachusetts-registered investment advisors use social networking sites for business purposes, according to a survey conducted by the state's securities regulator.
Among those firms, however, about 70% have not developed policies for saving posts and messages on sites such as LinkedIn, Facebook, Twitter. In practice, 57% of them weren't saving all the content they posted on those sites, as required by law.
William Galvin, the state's secretary of the commonwealth, released the survey results on Wednesday.
Galvin's office, which regulates securities in Massachusetts, sent the survey to the 576 investment advisors registered with the state and based there. Four hundred fifty-five responded.
The absence of social networking communications policies among so many registered investment advisors is "the key finding" of the survey, Galvin said in an interview.
Galvin announced plans for a working group to develop guidance for advisors on creating policies for retention and use of social network communications. No such guidance for RIAs now exists, he said.
The state now oversees only those RIAs handling $25 million or less in assets; larger ones are registered with the Securities and Exchange Commission.
The threshold is to rise to $100 million by next spring, meaning there will be more RIAs under state supervision.
"I don't think there's a deliberate effort here," Galvin said. Small advisors typically don't have an in-house compliance officer to develop policies, he said.
Still, the lapse poses a problem for advisors and their clients, he said, especially when "inevitable" disagreements arise about what an advisor may have said about certain securities.
And the problem is likely to spread as more communication takes place on social networking sites.
Roughly 20 additional advisors in Massachusetts said that they planned to begin using the websites for business during the next year.
Uncertainty about the effectiveness of social networking sites as a business tool may also factor into the lack of policies, he said.
"For most people, the first question is will it work," Galvin said. "They're not thinking as their first thought, 'Let's have a policy.' "
Industry rules require investment advisors to capture electronic communications on social networking sites and save them for three years.
